IHS's Yergin: US Shale Energy Upends Global Politics, Economics

U.S. shale gas production and related output of oil are having a profound impact around the world, asserts Pulitzer Prize-winning author Daniel Yergin.

"The emergence of shale gas and tight oil in the U.S. demonstrates ... how innovation can change the balance of global economic and political power," writes Yergin, vice chairman of IHS Inc., for Project Syndicate. IHS, based in Colorado, is a market-research provider.

For one thing, shale gas and the development of so-called "tight oil" reserves through similar methods helped force Iran to the negotiating table by replacing Iranian oil exports blocked by sanctions, Yergin says.

Because of America's success in extracting oil in ways similar to those used to produce shale gas, as well as improved auto fuel efficiency, the U.S. is importing much less oil from the Middle East, he notes. He adds, though, that the Mideast will remain a political priority because of oil's worldwide importance.

"The rise of U.S. shale energy is also having a broader global economic impact: American shale gas is changing the balance of competitiveness in the world economy, giving the U.S. an unanticipated advantage," writes Yergin, who won a Pulitzer for his book, "The Prize: the Epic Quest for Oil, Money, and Power."

Shale gas, the most important energy innovation so far this century, now represents 44 percent of U.S. natural gas production. Europe pays three times as much for gas and Asia five times as much, Yergin says.

"Tight oil, produced with the same technology as shale gas, is boosting U.S. oil production as well, with output up 56% since 2008 – an increase that, in absolute terms, is larger than the total output of each of eight of the 12 OPEC countries."

While inexpensive natural gas fuels an American manufacturing renaissance, European countries are becoming alarmed at their loss of competitiveness, he points out. Germany, in particular, is in trouble. It relies on exports for half its GDP, but it will lose global market share because of its rising energy costs.

Other nations are reworking their own energy policies in response to America's success in producing shale gas. China is working hard to develop its own unconventional gas resources, he says, noting it must replace coal with natural gas reduce severe air pollution in its cities.

Umbarger notes that other nations have large deposits of natural gas, citing Russia and Argentina in particular. "The geology factor of trapping deposits exists around the world. It is not unique geologically to the United States or Canada."